Commodities Market Review: Gold’s Turnaround on Powell’s Dovish Tone

Biggest Winner in Commodities Sector

With a total gain of 48% cocoa is this year’s best-performing commodity, taking advantage of a drop of over 40% by the end of 2017 from the level in late 2015. Last Wednesday, the cocoa futures on ICE has climbed to an 18-month high of $2,836 per metric ton. The surge last week was primarily led by the new farm-gate price of Ivory Coast, cocoa’s top grower in West Africa.

Exhibit: Price of ICE_CC1

(Source: Quandl.com)

On Aug 22, Wednesday, Ivory Coast’s Cocoa Coffee Council (CCC) announced the plan to auction all of its cocoa harvest to exporters to guarantee planters’ profits before the beginning of the season. It is previously reported that due to the sharp drop in world prices in the mid 2016/17, SAF-Cacao, Ivory Coast’s largest domestic exporter, owed more than 150 billion CFA francs to the banks. Therefore, Ivory Coast’s banking system was severely hurt with poor liquidity. It is believed that the new sales method, as an adaption to the current environment, would protect the producers in case of falling prices and market instability.

(Source: footprint2africa.com)

According to a source from CCC, approximately 1.7 million tonnes of cocoa export contracts have already been sold in mid-August, allowing the CCC to set a guaranteed price of between 750 and 800 CFA per kg in October.

Gold Rebounded for Two Reasons

Gold market has remained in a downtrend since the second half of this year. However, it finally saw a significant rebound on Aug 16 and further saved the $1200 level last Friday. The first surge was led by the progress in China-U.S. trade war talks. The second rise was triggered by the economic comments by Federal Reserve Chair Jerome Powell at the annual Fed symposium at Jackson Hole Wyoming.

Exhibit: XAUUSD

(Source: Tradingview.com)

Since the United States and China began “trade war” two months ago, the two economies had slapped higher tariffs worth billions of dollars on each other’s goods. During this period, Chinese currency, CNY, has fallen about 8% against USD. However, on Aug 16, it was confirmed by White House economic advisor, Larry Kudlow, that the two parties will resume trade talks and discuss trade issues later this month. With hopes for de-escalation in the trade war, haven-seeking capital flows were directed towards the yellow metal instead of the greenback. On that trading day, gold spot price rallied 0.34% to $1,178.90 per ounce.

(Source: growthcrossings.economist.com)

Last Friday, gold market got another bullish trend due to Fed Chair Powell’s hints about the direction of American monetary policy. He said that “further, gradual” interest rate hikes are appropriate as the economy continues to show signs of strong growth. Despite the overall optimistic outlook expressed by Powell, the slow and steady pace of rate hikes by central banks aiming to keep strong job growth and balance economic growth is interpreted as a dovish tone and hence more neutral approach by traders. As a direct result, the dollar would become less attractive and further provided support for dollar-denominated bullion prices.

(Source: scmp.com)

After Powell’s comments on Aug 24, last Friday, the dollar index DXY fell 0.5%, pushing the gold market broke above the $1200 level with more than 1% gain. This is also gold’s first weekly gain after posting six weeks of losses since early July.

I Know First’s Successful Forecast

On August 22nd, I Know First algorithm issued bullish predictions for commodities for a 3-day horizon. The predictions include Cocoa and ICE_CC1, a continuous cocoa futures contract. Over the 3-day trading period from August 22 to August 25, Cocoa and ICE_CC1 raised by 4.65% and 4.63% respectively.

On August 23rd, I Know First algorithm issued bullish and bearish predictions for the precious metals for a 3-day horizon. The predictions include XAU, physical gold direction and GLD, a gold ETF. Over the 3-day trading period from August 23 to August 26, XAU and GLD raised by 1.00% and 0.79% respectively.

This gold forecast was sent to the current I Know First Subscribers on August 23, 2018.